« The Moral Hazard of the MSM | Main | ACORN & the Yellowed Press »

Tuesday, September 15, 2009


James H. Murphy

You are dead wrong in saying that “tariffs do seem to have a history of hurting the economy.” That is not the American experience.

The real world experience of US trade protection is much more positive that the free traders want to admit. Back in 1828 one of the few things Andrew Jackson and Henry clay agreed on was that America needed protective tariffs. So they passed the “Tariff of Abomination” that was the highest tariffs we have ever had. Higher than the Smoot-Hawley tariffs of a hundred years latter. These high tariffs upset the then Vice-President John C. Calhoun who set off a Constitutional crisis by urging nullification of the tariff within South Carolina. They compromised and cut the tariff from about 62 percent to about 40 percent.

Tariffs went up and down but generally drifted lower in the following years ending at about 20 percent just before the Civil War. According to free traders a trade protected economy without foreign competition should have high prices, shoddy products, and producers should have no incentive to innovate. Society should slide into mediocrity and poverty. That was never the US experience with trade protection. Contrary to free traders, the economy was growing with higher wages, lower prices, and much innovation.

After the first few months of the Civil War Congress decided to protect industry from foreign competition in war time and passed the Morrill and War tariffs which jacked tariffs up to just under 50 percent. After the war tariffs oscillated but stayed high until the first decade of the twentieth century. Again, contrary to free traders, the economy was growing with higher wages, lower prices, and much innovation. During this time we overtook free trade Great Britain.

In the first part of the twentieth century it was thought that the way to respond to industrial monopolies was to expose them to foreign competition. Tariffs were lowered to below 20 percent. That cost jobs and was abandoned in favor of anti trust legislation. By the 1920s tariffs were back in the range of 40 percent where they were when Mr. Smoot and Mr. Hawley introduced their new tariffs that raised tariffs to just below 60 percent.

Smoot-Hawley tariffs went into effect in June 1931 but did not last long. In 1934 Roosevelt started lowering them. When the Great Depression got worse in 1937 tariffs were long back to pre Smoot-Hawley levels. Tariffs continued to decline to current low levels.

The history of US trade protection has been written by advocates of free trade and surprise, surprise protection comes out as a bad thing. That is wrong. Republicans were for trade protection before they were against it. Every Republican presidential candidate from Abraham Lincoln to Herbert Hoover was a protectionist. During that long period of trade protection, contrary to the theory of free traders, the US had higher real wages, lower prices, and more innovation than the rest of the world.

During that long period of protection the US ascended to the economic high from which it has descended during a short period of free trade. Free trade got us to where we stand today.


Mr. Murphy: I greatly appreciate your analysis. I think you're right that in some cases, tariffs can do some good. But it depends on the type of tariff. Tariffs created for protectionist purposes seem to affect the economy in an adverse way. Revenue-generating tariffs on the other hand have sometimes been successful. The Morrill tariff (according to Morrill himself) was designed as a revenue-generating, rather than a protectionist tariff.

Although Jackson and Calhoun may have agreed that a tariff was necessary at the time of its implementation, the effect of the tariff seems to me to have been quite negative. The nullification crisis was, in my view, a result of the tariff. It was tremendously destabilizing and followed by an economic downturn.

As for Smoot-Hawley, I think you still have to take into consideration the fact that retaliation continued long after its enactment. These reactions were not a response to Roosevelt's lowering of tariffs. They were a response to the original act.

I do not think that free trade is responsible for today's economic troubles, but I am very interested in hearing your explanation of the matter. Thanks again for your input. I appreciate your feedback and I apologize for taking so much time to reply.

The comments to this entry are closed.